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The Guardian - UK
The Guardian - UK
Business
Nick Fletcher

UK manufacturing data worse than expected, with mixed US and European results - as it happened

Brompton bicycle folding bikes factory in West London.
Brompton bicycle folding bikes factory in West London. Photograph: Piero Cruciatti/REX

Mixed signals for US manufacturing

Following a positive Markit manufacturing survey, the latest report from the Institute for Supply Managment has come in below expectations.

The ISM manufacturing activity index fell to 52.6 in July, down from 53.2 the previous month and lower than the forecast 53.

US manufacturing
US manufacturing Photograph: Institute for Supply Management

And here, from the report, are some of the views expressed by manufacturers:

Survey responses
Survey responses Photograph: Institute for Supply Management

On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.

US manufacturing grew more strongly in July, according to the latest Markit data.

Its manufacturing PMI came in at 52.9, up from 51.3 in June and in line with the initial estimates. This is the highest level since October, with the employment index at its best since July 2015, which bodes well for Friday’s non-farm payroll numbers.

Markit chief economist Chris Williamson said:

The stronger manufacturing PMI survey data for July fuel hopes that the sector will act as less of drag on the economy in the third quarter after a disappointing first half of the year.

Having signalled the sector’s worst performance for over six years in the second quarter, contributing to a sluggishness in the economy that was later seen in the soft GDP numbers, the improvement in July suggests that manufacturers and exporters will have helped lift the economy at the start of the third quarter.

Job creation has also picked up, hopefully in a sign that producers are seeing a brighter picture, coping with a strong dollar and having put the worst of the energy sector’s restructuring behind them.

US PMI
US PMI Photograph: Markit

Wall Street opens lower

Ahead of the two US manufacturing reports due shortly - first Markit, then the Institute for Supply Management - US markets are edging lower in early trading.

The Dow Jones Industrial Average is down around 28 points while the S&P 500 has opened marginally lower.

The two surveys tend to be out of sync, but this time both are expected to show slight improvements.

Updated

There could be more bad economic news for the UK ahead of the Bank of England’s rate decision on Thursday:

And on Wednesday comes the UK service sector PMI which is forecast to be flat on June’s figure.

Decisive policy action is needed after the poor UK manufacturing figures, writes our economics editor Larry Elliott:

So much for the idea that the post-Brexit hit to UK manufacturing was a knee-jerk reaction to the referendum and that the mood would improve as time wore on.

The final figures for how industry fared in July are now in, and they were even worse than the flash estimate released 10 days ago. Some analysts had expressed guarded confidence that Theresa May’s arrival in Downing Street might have made companies less gloomy.

While it is still possible that there has been an overreaction to the shock Brexit result, the idea that business will ride things out after a month or two of turbulence now looks fanciful. Policy action – and decisive policy action at that – is going to be needed, starting with the Bank of England later this week.

More here:

Another vote for the Bank of England to not only cut interest rates on Thursday, but also take other measures to help boost the UK economy:

A quick comparison of some of the day’s eurozone PMIs:

Here’s our story on the poor UK manufacturing figures:

Britain’s manufacturing sector shrank at the steepest pace for more than three years in the wake of the vote to leave the EU, forcing factories to cut jobs as they grappled with higher costs and lower demand.

News that the decline in manufacturing activity in July was steeper than first thought cemented a view that the Bank of England will cut interest rates this week in a bid to shore up business and consumer spending.

The closely watched Markit/CIPS UK Manufacturing PMI survey, which polls more than 600 companies monthly, suggested domestic demand for manufacturers’ goods had been hit by uncertainty both before and after the UK’s referendum on EU membership on 23 June. That overshadowed a boost to export orders from a weaker pound, which makes UK goods cheaper.

The headline index was the worst since early 2013 and weaker than a “flash” estimate published in July.

The new reading, which takes in responses from a greater number of firms, stood at 48.2, down from the flash estimate of 49.1 and lower than 52.4 in June. A reading above 50 denotes expansion while a reading below suggests activity contracted. Responses were collected between 12 and 26 July.

The full story is here

Elsewhere, and there is some fallout from the unexpected decision last week by the UK government to delay plans for the Hinckley Point C nuclear power station:

China has warned Britain that it cannot risk driving away Chinese investors as the country’s official news agency questioned the UK government’s postponement of approval for the Hinkley Point nuclear power plant.

Theresa May, the prime minister, is understood to be concerned about the security implications of a planned Chinese investment in Hinkley and has delayed giving the £18bn project the green light.

Xinhua news agency said China understood and respected Britain’s requirement for more time to think about the deal.

“However, what China cannot understand is the ‘suspicious approach’ that comes from nowhere to Chinese investment in making the postponement,” it said.

More here:

Could the UK now go into recession? Here’s Barclays:

The disappointing UK manufacturing data and the mixed picture from Europe have taken the edge off stock markets. Connor Campbell, financial analyst at Spreadex, said:

Coming in even worse than the initial glimpse revealed a few weeks ago the UK managed a paltry July manufacturing PMI of 48.2, the lowest reading for around 3 years.

The effects of this contraction territory figure on the FTSE (which is teetering on the edge of a loss thanks largely to the banking sector) were somewhat mitigated by the fact that it only increases the change of action from the Bank of England on Thursday, the situation now perhaps requiring not only a rate cut but something a bit more substantial. Thanks to this line of thought the pound was the one that suffered following the PMI-reveal, slipping 0.4% against the dollar and 0.3% against the euro.

The Eurozone had similar, if not quite as severe, issues this Monday. Both Spain and Italy underperformed expectations, while France remained in contraction territory for the 5th consecutive month; only Germany beat estimates at 53.8 against the 53.7 forecast, helping the region-wide figure crawl up to 52.0 from the 51.9 forecast. This couldn’t prevent the DAX from seeing its earlier gains being cut by two thirds, though the German index is still the best performer this morning with a 0.4% rise.

Looking ahead to the US open and the focus will remain on the manufacturing sector. The Markit reading is forecast to be confirmed at an improved 52.9 (against 51.3 the month previous), while the ISM figure is set to slip to 53.1 from 53.2. Nothing of this has the Dow Jones too bothered at the moment, the futures suggesting a 35 point rise after the bell.

Meanwhile banking shares have turned negative in the wake of the latest European stress test results released late on Friday.

Barclays is down nearly 3% and Royal Bank of Scotland is 2.5% lower while Italian banks have fallen sharply:

The Bank of England might do more than cut rates on Thursday after the poor UK manufacturing data, suggests David Morrison, senior market strategist at SpreadCo:

This latest reading provides the Bank’s MPC with further evidence of a post-Brexit slowdown and makes a rate cut at Thursday’s meeting pretty much inevitable. The only question now is whether they back up a 25 basis point cut with an increase to the Asset Purchase Facility as well.

Sterling has fallen back after the disappointing UK manufacturing data, on the basis that an interest rate cut this week is all but nailed on.

Against the dollar the pound has dropped 0.11% to $1.3212 and is down marginally against the euro at €1.183.

Meanwhile the FTSE 100 has lost most of its early gains and is now up just 7 points or 0.1%.

Mike Rigby, Head of Manufacturing at Barclays, said:

These disappointing figures would indicate that the uncertainty deterring manufacturers from making vital investment decisions prior to the EU referendum has taken a stranglehold since the vote and we can expect to see businesses continuing to protect cash and guard investment.

Such caution is of course understandable and encouragingly the expected rise in exports, given the weaker state of sterling, is materialising but with growth in the sector being very hard-earned, manufacturers will want clarity on what post-Brexit means for their industry sooner rather than later.

The UK manufacturing sector shrank at its fastest pace in more than three years, with the new orders index showing its biggest monthly drop in 18 years. Input prices rose to their highest level in five years.

The disappointing result, worse than the initial estimate, is another sign that the Brexit vote on 23 June is hitting the country’s economic growth.

The figures will put more pressure on the Bank of England to live up to expectations and cut interest rates on Thursday. Rob Dobson, senior economist at Markit, said:

The pace of contraction was the fastest since early-2013 amid increasingly widespread reports that business activity has been adversely affected by the EU referendum. The drops in output, new orders and employment were all steeper than flash estimates...

The weakening order book trend and upswing in cost inflation point to further near-term pain for manufacturers. On that score, the weak numbers provide powerful arguments for swift policy action to avert the downturn becoming more embedded and help to hopefully play a part in restoring confidence and driving a swift recovery.

UK PMI
UK PMI Photograph: Markit
UK PMI and manufacturing output
UK PMI and manufacturing output Photograph: Markit

UK manufacturing worse than expected

UK manfacturing fell by more than initially expected in July.

The Markit manufacturing purchasing managers index came in at 48.2, down from 52.4 in June and lower than the already disappointing inital reading of 49.1.

Updated

Eurozone manufacturing sees slower growth in July

Manufacturing growth across the eurozone slipped back in July, with the sector mainly supported by a strong performance from Germany.

Markit’s eurozone manufacturing PMI fell to 52 in July from 52.8, just above the initial estimate of 51.9.

Chris Williamson, chief economist at Markit, said:

The problem is that growth is looking increasingly lop-sided, which will worry policymakers and add to calls for further stimulus from the European Central Bank.

Dig deeper beyond the headline numbers and more worrying pictures appear. Expansions in output and employment are clearly being driven to a larger extent by surging growth in German, while growth has almost stalled in both Italy and Spain, and contractions are being seen in France and Greece.

And Greece, back in contraction:

Updated

German manufactures see steady growth

Over in Germany the manufacturing picture is brighter.

The Markit manufacturing PMI came in at 53.8 in July, down slightly from June’s figure of 54.5 but just ahead of forecasts and still well in expansion territory. Markit’s Oliver Kolodseike said:

Today’s survey results highlight ongoing steady growth in Germany’s goods-producing sector at the start of the third quarter. Although the headline PMI dropped slightly since June, the underlying growth fundamentals remain strong.

The European Central Bank will be pleased to see that input costs rose for the first time in a year during July and selling prices stabilised, thereby adding to hopes that consumer price inflation will edge up in coming months.

French manufacturing sector contracts for fifth month

France’s manufacturing sector improved slightly in July but still contracted for the fifth month in a row.

The Markit purchasing managers index edged up from 48.3 in June to 48.6, in line with expectations. Jack Kenedy, a Markit economist, said:

July’s PMI data signalled a further modest contraction of the French manufacturing sector, amid continuing fragility in incoming new orders.

And here’s the Italian manufacturing PMI, also weaker than expected:

Markets are being supported by the expectation that the Bank of England will cut UK interest rates this week, and that the US Federal Reserve will refrain from raising them. The mixed picture so far from the manufacturing data, not to mention Friday’s poor US GDP figures, seems to make this more likely Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor, said:

After a positive July for equity investors, August has also started strongly as investors place their bets on accommodative central bank policy from Japan, the US and the UK. While opinions about when the Federal Reserve will eventually raise rates remain divided, the market is all but certain that Mark Carney will cut rates this week to stimulate the UK economy. The only unknown is what additional measures he (or indeed the new Chancellor, Philip Hammond) might take to deliver the required stimulus to boost confidence and avoid a protracted recession.

Spain’s manufacturing has come in below expectations:

While we await the manufacturing data from Italy, France, Germany and the UK, here are some snapshots from elsewhere, including Russia showing a contraction:

European markets climb in early trading

Markets have, as expected, opened higher with the FTSE 100 up 26 points or 0.4%.

Germany’s Dax is up 0.9%, Spain’s Ibex has risen 1%, while France’s Cac and Italy’s FTSE MIB are both 0.7% better.

In the wake of the banking stress tests released late on Friday, the Stoxx 600 banking index is up 0.9%.

Meanwhile, despite the Brexit vote and worries about an economic slowdown, markets recovered some lost ground in July:

Greece eases capital controls

Developments in Greece with signs of normality returning to the country’s banking system. Helena Smith reports:

More than a year after they were imposed, capital controls in Greece will be substantially eased on Monday in a bid to lure back billions of euros spirited out of the country, or stuffed under mattresses, at the height of the eurozone crisis.

The relaxation of restrictions, whose announcement sent shockwaves through markets and the single currency, is aimed squarely at boosting banking confidence in the eurozone’s weakest member. The Greek finance ministry estimates around €3bn-€4bn could soon be returned to a system depleted of more than €30bn in deposits in the run-up to Athens sealing a third bailout to save it from economic collapse last summer.

“The objective is to re-attract money back to the banking system which in turn will create more confidence in it,” said Prof George Pagoulatos who teaches European politics and economy at Athens University. “And there are several billion that can be returned. People just need to feel safe.”

The full story is here:

Here’s the PMI agenda courtesy of DailyFX:

PMI agenda
PMI agenda Photograph: DailyFX

Here are the opening calls for European markets:

Agenda: Global PMI data in focus

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

It being the first of the month, we get the latest snapshot on how the global manufacturing sector performed in July.

We’ve already had the Chinese data, and there are more signs of a slowing economy there. The official manufacturing survey fell back unexpectedly, with a slowdown in orders and disruption from flooding.

The purchasing managers index fell from 50 in July to 49.9, just in contraction territory (anything below 50). Analysts had been expected a figure of 50 once again. The service sector survey edged up fro 53.7 to 53.9.

A private manufacturing survey was a little more positive than the official version. The Caixin/Markit reading came in at a stronger than expected 50.6, the first expansion since February 2015.

Meanwhile Japan’s manufacturing PMI also contracted, coming in at 49.3.

Shortly come the European and UK figures.

In the light of Brexit the UK data will be particularly interesting, ahead of the latest Bank of England decision on Thursday which is expected to see an interest rate cut.

The initial reading showed the sharpest downturn in the UK economy since the financial crisis seven years ago, but this may well be revised upwards. Michael Hewson, chief market analyst at CMC Markets UK, said:

We saw this fall to 49.1 from 52.1... however there is a chance that we could see this revised higher given that the flash number was taken at a time when political uncertainty was at elevated levels. This is no longer the case and this might be reflected in a slightly improved number.

On the European and US data, Hewson said:

We will also be getting the latest July manufacturing PMI numbers for Spain, Italy, France and Germany with slowdowns expected for Spain and Italy to 51.6 and 52.2, while France is expected to stay stuck in contraction at 48.6. German manufacturing is expected to show the strongest reading at 53.7.

In the US the latest ISM manufacturing report showed a decent recovery in June to 53.2, and the expectation is that this could well continue into July with a reading of 53.1, which may bode well for this week’s jobs data.

Updated

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